The European Commission’s decision on September 6 to start investigating suspected dumping of Chinese-made solar panels has sparked fears of a damaging Brussels-Beijing trade war. It should not: the EU-China relationship is much too important to be jeopardized by anti-dumping inquiries which – however sensational – represent a minor percentage of EU-China trade.

The solar panel case has been on the EU drawing board for several months, prompting repeated warnings from China that any EU action would hurt the global clean energy sector and lead to damaging tit-for-tat measures.

The group of European solar companies, led by Germany’s SolarWorld, and including Italian and other European firms, says Chinese solar firms have been selling panels below market value in Europe. Chinese producers in the firing line include Yingli Green Energy, Suntech Power Holdings Co Ltd, Trina Solar Ltd and Canadian Solar Inc.

The inquiry is not unexpected. Under EU law, the Commission is bound to open an anti-dumping inquiry if the complaint satisfies certain basic requirements. Officials say this is the case.

The timing of the investigation is unfortunate, however: it comes just days before the EU and China hold summit talks in Brussels. The meeting on September 20 will be the last formal encounter between Premier Wen Jiabao – who has invested much time and effort in developing China’s EU connection – and senior EU policymakers before he hands over the baton to his successor (widely expected to be Vice Premier Li Keqiang).

The EU action follows close on the heels of German Chancellor Angela Merkel’s much-publicised visit to Beijing last week. Ms Merkel has said she wants the dispute over solar panels to be resolved through dialogue, not an anti-dumping investigation. She has also sought to reassure her worried Chinese hosts on the “absolute political will” of Eurozone countries to stabilize their currency.

Merkel’s visit coincided with a Chinese announcement that it was purchasing 50 Airbus planes worth over $4 billion, the first significant order since a dispute between Beijing and Europe over emissions trading.
Wen’s farewell meeting with the EU should certainly not be soured by the anti-dumping case. There should be no repeat of the acrimony generated at the EU-China summit in 2010 over EU criticism of China’s currency policy.

Both sides have mended fences over the last two years. Discussions continue over human rights, market access and investments. But the Eurozone crisis and China’s increased economic clout has led to a change in the EU’s view of China. As such, European Commission President Jose Manuel Barroso and EU Council President Herman Van Rompuy are likely to focus on the many areas where the EU and China have succeeded in building a stronger partnership rather than on trade and other irritants.
There are initial encouraging signs that Beijing is toning down its earlier rhetoric. In contrast to earlier statements, China’s immediate response to the anti-dumping inquiry been measured, with no mention of any retaliatory steps.

“China expresses deep regret” about the decision, Ministry of Commerce spokesman Shen Danyang said in a statement on the ministry’s website (www.mofcom.gov.cn).

“Restricting China’s solar panel products will not only hurt the interests of both Chinese and European industry, it will also wreck the healthy development of the global solar and clean energy sector,”said Shen.
He urged the EU to “seriously consider China’s position and proposals, and to resolve friction over solar panel trade through consultations and cooperation”.

China sold about 21 billion euros in solar panels and components to the EU in 2011 – about 60 percent of all Chinese exports of the product.

Total EU imports from China were valued at 292 billion euros last year. Imports of Chinese products subject to trade defense duties total less than one percent of that amount. The US also imposed duties on solar panel imports from China in May after a similar initiative led by SolarWorld there.

Europe’s solar companies are divided over the dumping case. Some such as those that install panels say Europe should welcome Chinese imports because they make solar power more affordable and are essential for the 27-member bloc to achieve its goal of having 20 percent of energy from renewables by 2020. EU companies that have sold machinery to China to produce photovoltaic cells have also expressed misgivings.

EU governments are unlikely to see eye to eye on the investigation. Berlin is wary of annoying a country with which it has forged a trade-based “special relationship” and which remains an important ally in efforts to stabilize the Eurozone.

Others may also hesitate. The EU-China relationship has been gaining momentum in recent months. At their last summit in Beijing in February, the EU and China launched a high level people-to-people dialogue on a par with their discussions on strategic issues and on economic questions.

An urbanization partnership is now in full swing with mayors’ from Europe and China set to meet in Brussels on September 19 for two days of discussions.

In addition, EU and Chinese business leaders will meet for their own summit on September 20 to discuss investments and innovation.

The upcoming EU-China summit is not expected to result in any headline-grabbing new initiatives but practical new cooperation tracks will emerge. Leaders are expected to launch discussions on water security, a rural development partnership and talk about cyber security.

The focus on practical engagement and cooperation in areas of mutual interest should define the EU-China relationship in the coming years. China and Europe are increasingly interdependent, a fact that Merkel understands and underlines.

As such, instead of fearing Germany’s determination to build ever-stronger relations with China, Berlin’s partners should encourage such moves. The German-China “special relationship” adds to the EU’s clout and influence when talking to Beijing.

Talk of competition between the EU and Germany in dealing with China should be jettisoned. Instead, the EU should take a leaf from Berlin’s book of practical diplomacy and engagement with Beijing. What’s good for German-Chinese relations will boost, not undermine, EU-China relations.